Developments in UK insolvency by Michelle Butler

Tag Archives: Dear IP

As promised in my last blog (but later than planned – sorry), here is my second selection of news from the Insolvency Service’s blog and Dear IP 76 that I think is worthy of spreading… with some further commentary from me, of course.

The questions fall into the following topics:

S100 Decisions

Other Decision Processes

Timing Issues

As I mentioned previously, I am very pleased that the Insolvency Service has shared their views on many issues and I do hope they will continue to be this open. I would also like to thank the technical and compliance managers and consultants with whom I have spent many hours debating the rules; without these valuable exchanges, many of the issues would not have occurred to me.

S100 Decisions

Can the Statement of Affairs and SIP6 Report be delivered by website?

As the director is responsible for delivering the Statement of Affairs, it is the Insolvency Service’s view that the Statement cannot be delivered by means of a website, as the rules governing website delivery – Rs 1.49 and 1.50 – only apply to office holders. Therefore, the Statement must be either posted or emailed to creditors.

Of course, delivery of the SIP6 report is not a statutory requirement and strictly-speaking SIP6 simply requires the report to “ordinarily be available”. I understand that at least one RPB is content for the SIP6 report to be made available via a website.

Does an invitation to decide on whether to form a committee need to be sent along with the S100 proposed decision notice?

The question arises because R6.19 requires such an invitation where any decision is sought from creditors in a CVL, whereas usually the company is not in CVL when the S100 proposed decision notice is signed.

The Insolvency Service has answered “yes”, the director needs to seek a decision from creditors on whether to form a committee when they propose the S100 appointment.

Can the SoA/S100 fee be approved via deemed consent?

In view of the Insolvency Service’s approach to IPs’ fees in general, the answer to this might seem an obvious “no”. However, the background to the query was that the rules require creditors to approve the payment of the fee, not its quantum, and therefore it is not quite so obviously “a decision about the remuneration of any person”, which the Act limits to decision procedures, i.e. not including the deemed consent process.

But unsurprisingly the Service answered: “no”.

This has led some people to rethink their process of getting paid the SoA/S100 fee. We have been receiving quite a few questions on whether such fees need approval if they are paid pre-appointment and/or by a third party.

The Insolvency Service has confirmed that R6.7(5) – which requires approval of payments made to the liquidator or an associate – applies to payments referred to in R6.7(4), i.e. those made by the liquidator. R6.7(3) provides that, where payment is made from the company’s assets before the winding-up resolution, the director must provide information on the payment along with the SoA, but they do not require creditor approval.

Does R15.11’s timescale for decisions on the liquidator’s remuneration (when made at the same time as the S100 decision on the liquidator) apply also to decisions on the SoA/S100 fee?

R15.11 provides that at least 3 business days’ notice must be given for S100 proposed decisions on the liquidator. This rule also provides that the same timescale applies to “any decision made at the same time on the liquidator’s remuneration”. It stands to reason that, if a virtual meeting were convened to consider a decision on the SoA/S100 fee at the same time as the decision on the liquidator, the same notice requirements would apply, but does the SoA/S100 fee strictly fall under “the liquidator’s remuneration”?

The Insolvency Service has stated that R15.11 should be taken to include the proposed pre-liquidation payments referred to in R6.7(5).

Other Decision Processes

What access information needs to be provided on a notice summoning a virtual meeting?

This question arises from the requirement of R15.5 that the notice to creditors must contain “any necessary information as to how to access the virtual meeting including any telephone number, access code or password required”.

The Insolvency Service has answered: “we think that sending a contact number or email address for creditors to contact in order to obtain such details is also acceptable under this rule”.

Personally, I am pleased with this answer, as I think it makes the logistics of virtual meetings far more manageable. It almost eliminates the risk of unknown “excluded persons”, as you would know who is planning to attend. You could also set up ways of verifying who participants are; you could contact them beforehand, maybe send them agendas and meeting packs. Also during the meeting if they get cut off, you would have a ready alternative contact for them, and it would be easier to count votes or set participants up with electronic voting. I don’t think that some kind of pre-meeting contact is too much to ask from creditors; to illustrate, if I want to sign up to an open-access webinar, I think nothing of contacting the convener beforehand in order for a link to be sent to me.

Can creditors ask upfront for an Administrator’s Para 52(1) Proposals to be considered at a physical meeting?

As we know, when Administrators include a Para 52(1) Statement in their Proposals, they do not ask creditors to vote on whether to approve the Proposals, but they must start a decision process going if the requisite number of creditors ask for a decision within 8 business days of delivery of the Proposals. Para 52(2) makes it clear that the request from creditors is for a decision, not a meeting as was the case before the Small Business Act. However, R15.6(1) states that “a request for a physical meeting may be made before or after the notice of the decision procedure or deemed consent procedure has been delivered”. Therefore, if the consequence of creditors asking for a Para 52(2) decision is that the Administrator issues a notice of decision procedure (say, a correspondence vote on the Proposals), then this rule seems to allow creditors to ask for a physical meeting before this notice is delivered.

The Insolvency Service has confirmed that this is the case: “there is no reason that the requisitioning creditor should not at the same time request a physical meeting. We note your comment that the request for a physical meeting is being made here before a decision process has even commenced, but we think that is it reasonable to interpret the rules this way on this occasion because the request does clearly relate to a decision”.

Ok, so does a creditor asking for a physical meeting to consider the Para 52(1) Proposals need to pay a deposit to cover the costs of this meeting?

R15.6 sets out how creditors’ requests for a physical meeting should be handled. It includes no reference to paying a deposit to cover the costs of the meeting. Mention of paying a deposit appears at R15.18, which relates to requisitioning decisions.

Therefore, quite rightly (albeit unfairly) in my view, the Insolvency Service has stated that “it would follow that where costs of the decision are met by the requisitioning creditor then these would be for a decision which is not made by a physical meeting. Any costs of the physical meeting over and above the security paid by the creditor for a decision process would be an expense to the estate”.

Thus, it would seem that, on receiving sufficient requests for a physical meeting to be summoned to consider Para 52(1) Proposals, the Administrator would need to calculate hypothetically how much it would cost to organise this via a non-physical-meeting procedure and ask the requisitioning creditor for this sum. As the rules require “itemised details” of this sum to be delivered to the creditor, this would take some explaining in order to put the creditor’s mind at ease that we weren’t ignoring their request for a physical meeting even though we were asking them to pay the costs for conducting, say, a correspondence vote!

Does a creditor need to lodge a proof of debt in support of a request for a physical meeting?

The Insolvency Service’s simple answer is “no”. This is what I thought when I read the rules, but it does seem odd… and could lead to all sorts of controversy.

Can approval for an Administration extension be sought by deemed consent?

Understandably I think, the Insolvency Service has answered “yes”. It almost goes without saying, however, that seeking secured creditors’ consents is not a decision process; the positive approval of each and every secured creditor is required (just thought I’d mention it).

How do you deal with the need to invite creditors to make a decision on whether to form a committee when seeking a decision by deemed consent?

The Insolvency Service has confirmed that this committee decision can be posed by deemed consent.

Via Dear IP 76, the Service also endorses the format of a proposed decision in the negative, i.e. that a committee shall not be formed… although it adds a sticky proviso: “in this way, if creditors have already indicated a lack of desire to appoint a committee, the office holder could simply propose that no committee be formed”. How do creditors indicate a lack of desire? In S100 CVLs, this seems straightforward enough in view of the fact that, as mentioned above, the director will have needed to invite such a decision in the first place. However, whether an absence of anything but the usual creditor concerns in, say, the first few weeks of an Administration is sufficient to indicate a lack of desire to satisfy the Service, I don’t know.

What is the alternative: that a positive deemed consent decision be posed, i.e. that a committee will be formed? The problem here is that, unless creditors object, then this decision will be made by default. In the light of probable creditor apathy, this could be unhelpful. Therefore, if a positive deemed consent decision is posed, it would seem necessary to describe it something like “a committee will be formed if there are sufficient creditors nominated by [date] and willing to act as members”, which to be fair is almost the wording set out in the Rules (e.g. R10.76). In this way, if the invitation for nominations is similarly ignored, then the positive decision, even if technically made, is of no effect.

However, it’s all a bit of a faff, isn’t it? It hardly makes for a Plain English process. I also dislike the idea that an office holder must propose a decision that he/she may not support. It doesn’t sit right with me for an IP to invite creditors to approve a decision to form a committee when the IP does not see the need or advantage in having one on the case in hand. However an IP words the proposed decision, creditors can take action to appoint a committee and, as the Rules do not prescribe a form of words, then surely office holders are free to propose a decision as they see fit.

If a Notice of General Use of Website has already been issued, what is the effect of Rs3.54(3/4), 2.25(6/7) and 8.22(4/5), which require additional wording about website-delivery in certain circumstances?

This question requires some explaining. As we know, R1.50 provides that the office holder can send one notice to creditors informing them that all future circulars (with a few statutory exceptions) will be posted onto a website with no further notice to them – this is what I mean by a Notice of General Use of Website. However, we also have R1.49, which repeats the 2010 provision that each new circular can be delivered by posting out a one-pager notifying creditors that the specific document has been uploaded to a website.

Things get complicated when looking at Rs3.54, 2.25 and 8.22. These rules govern how we invite creditors to decide on an Administration extension and a CVA/IVA Proposal. They state that the notice regarding such a decision may also state that the outcome of the decision will be made available for viewing and downloading on a website and that no other notice will be delivered to creditors and these rules go on to specify additional contents of such a notice, which draw from R1.49.

So the question arises: if you have already given notice under R1.50 to confirm that a website is going to be used for (almost) everything, do you need this extra gumpf?

The Insolvency Service has clarified that you don’t. If you have already followed (or are following simultaneously) the R1.50 process, then you need not worry about adding such references to your R3.54/2.25/8.22 notices; you can simply issue the notice via the website and then issue the outcome via the website also. Of course, given that you’re inviting creditors to consider an important decision, you might also want to post something out to them, but this does not appear necessary under the rules.

Timing Issues

If an Administration has already been extended pre-April 2017, when should I next produce a progress report?

As covered in a previous blog, the issue here is that, before April 2017, an extension would have resulted in the reporting schedule moving away from 6-monthly from the date of appointment and instead it will be 6-monthly from the date of the progress report that accompanied the request to approve the extension. As drafted, the 2016 Rules had not provided a carve-out for these cases, so it seemed that the reporting schedule for these extended Admins would be reset on 6 April back to 6-monthly from the date of appointment.

An attempt was made to fix this in the Amendment Rules, but in my view it was not wholly successful. They state: “Where rules 18.6, 18.7 or 18.8 prescribe the periods for which progress reports must be made but before the commencement date an office-holder has ceased to act resulting in a change in reporting period under 1986 rule 2.47(3A), 2.47(3B) 4.49B(5), 4.49C(3), or 6.78A(4), the period for which reports must be made is the period for which reports were required to be made under the 1986 Rules immediately before the commencement date.” The intention is clear: where the 1986 Rules have moved a reporting schedule away from the date of appointment, this adjusted schedule should continue. However, the reference to an IP ceasing to act is unfortunate, because in the scenario described above, this has not happened.

The Insolvency Service acknowledged that this rule “could perhaps have been more explicit” (ahem, I think the problem is that it was too explicit), but emphasised that the intention is clear. Presumably therefore the Registrar of Companies will not reject filings made on the extended 6-monthly schedule. (UPDATE 04/12/2017: the Amendment Rules that come into force on 8 December 2017 settle this matter once and for all.)

Also, just in case you haven’t already picked it up, I should mention that the Amendment Rules have most definitely fixed the issue I raised some months ago about the length of a month, so progress reporting now continues pretty-much in the pre-April way… although of course we now have to factor in the time taken to deliver reports.

Do Administrators’ Proposals really have to include a delivery date?

Sorry, this is more just me having a whinge: R3.35(1)(e) requires Administrators’ Proposals to state the date that the Proposals “are delivered” to creditors. When the Proposals are signed off, this will be a date in the future.

The Insolvency Service has confirmed that this is the case: they require the future “deemed” delivery date to be listed.

Of course, there are practical issues with this. If you deliver Proposals using more than one method, e.g. by R1.50 general website-delivery but also by post where some creditors have asked for hard copies (which admittedly will be rare), then you may well have more than one delivery date.

More practically, how will you/your staff complete this little nugget? It is commonplace for Proposals to go through lengthy drafting processes (despite some non-appointment taking IPs’ views that Proposals should be simple to produce in the first few days especially where there has been a pre-pack); drafts are turned over to several different people, being edited as they go. It is going to be a real faff to keep an eye on this insignificant date. My personal recommendation, if the issue date cannot be guaranteed at the outset, is to keep this delivery date coloured/highlighted on draft Proposals so that it is the very last item completed just before the Proposals are signed off.

Do you have to wait until the MVL final account has been delivered to members before submitting a copy to the Registrar of Companies?

When closing an MVL, the liquidator is required to confirm to the Registrar that s/he “has delivered” the final account to members (R5.10(3)).

The Insolvency Service does not believe that the liquidator has to wait until the final account has been “delivered” to members at this stage; it is sufficient that the liquidator has sent it. From what I can decipher, it seems they are viewing delivery here as “deemed” delivery, i.e. once it has left your office, it will end up being delivered a couple of days’ later (if sent by post). Personally, I still think it is odd to confirm at this point that the final account has been delivered, but at least we have an answer for any pedant who wants to debate this.

Do you have to wait until the Notice of Establishment of the Committee is delivered to the Registrar/Court before holding the first Committee meeting?

Despite the paradoxical “no” for the previous question, the answer to this one is “yes”.

The issue arises because R17.5(5) states that “the committee is not established (and accordingly cannot act) until the office-holder has delivered a notice of its membership” to the Registrar/Court. The Insolvency Service has confirmed that, yes, the notice must be delivered before the first meeting is held.

The frustration here, of course, is that we will no longer be able to hold the first committee meeting immediately after any meeting that establishes it, but because the rules require us to hold a first meeting (although this can be by remote attendance), we will have to call the committee members back again.

Personally, I wonder if practically it would still be valuable to hold an informal meeting with the (elected) committee members immediately – so that matters for investigation can be discussed and so that you can help them understand how committees work, maybe even discuss the office-holder’s fee proposal with a view to agreeing this later on – and then, hopefully, the actual first meeting will be little more than a formality. (UPDATE 04/12/2017: the Amendment Rules that come into force on 8 December 2017 fix this issue… sort of. See my explanation athttps://insolvencyoracle.com/2017/12/04/emerging-from-the-fog-some-amendment-rules/)

The next instalment..?

As we apply the new rules in practice, I am sure that more issues and ambiguities will emerge. As I mentioned previously, I am grateful to the Insolvency Service for their openness.

Emerging interpretations and views force me to revisit my previous conclusions, which is a good thing, although I am very conscious that earlier blog posts and presentations quickly become out-of-date. Even my presentation for the R3 SPG Technical Review at the end of March needed an update and this is now available to Compliance Alliance webinar subscribers (drop me a line – info@thecompliancealliance.co.uk– if you want to know more 😉 ).

I am also looking forward (err… sort-of!) to presenting on the rules at other R3 events – 6 June SPG Technical Review in Leeds; 7 June Southern Region meeting in Reading; 28 June North East Region meeting; and 4 July SPG Technical Review in Bristol. I welcome your queries and quirky observations on the rules, which will help me to make my presentations useful to the audience. I’m sure there are many more gems to unearth.

Along with Dear IP 76, the Insolvency Service’s Rules blog has been a fascinating read. If you don’t fancy trawling through all 148 comments, here are my personal favourites. There are too many to cover in one go, so I’ll start here with a handful of the more contentious:

How do the New Rules affect existing VAs?

What is the deadline for forcing a S100 physical meeting?

What happens if a Centrebind is longer than 14 days?

How should you handle decisions sought from preferential creditors alone?

How should creditors comply with the Rules when submitting notices and forms?

I’ll also take this opportunity to reflect on how these emerging interpretations and the Amendment Rules have impacted on my previous blog posts. I have tried to update old blog posts as time has moved on, but I cannot promise that old blog posts – or indeed this one – will remain current. Things are moving fast.

Nick Howard’s introduction to Dear IP 76 states candidly “While it is only a Court that can give a binding interpretation of the law, the enclosed article sets out the policy intentions and how we believe the Rules support those”. That’s understandable. Much as we thirst for a cut-and-dried answer, we cannot have it. Just like the 1986 Rules, it will take decades to establish robust interpretations and even then there will always be the Minmar-like decision that takes us by surprise.

What about the Rules blog?

To be fair, the Service provided it with the purpose “to offer users the chance to share their thoughts and experiences as they prepare for commencement” of the Rules. It was never meant to be an inquisition of the Insolvency Service, but it was inevitable that it would turn out that way and I am very grateful that the Service has grasped the nettle and been prepared to post their views publicly for the benefit of us all.

So what comfort can we draw from the answers?

At the very least, the Service’s explanations are extremely valuable in understanding how they meant the Rules to work and in giving us all a starting point. I wonder if it could be seen a bit like the new mantra, “comply or explain”: if we don’t trust an answer, we need to be certain that our reasons for departing from it are well-founded. And at the very best, the Service has provided explanations that make us say: “right, yes I can see that. Thanks, I’ll work on that basis”.

What are the New Rules’ Impacts on Existing VAs?

The difficulty for the Insolvency Service – and indeed for all of us – is that of course each VA is dependent on its own Proposals and Standard Terms & Conditions (“STC”), so expressing any opinion on the effect of the New Rules on VAs in general is going to be dangerous.

The difference between IVA Protocol and R3 STCs

The majority of IVAs use either the IVA Protocol or R3’s STC, so you might think it would be relatively straightforward at least to establish some ground rules for these two documents and then leave each IP to determine whether the Proposal itself has any overriding effect. Dear IP seems to have made a stab at this in relation to the IVA Protocol at least. However, I think it is important to bear in mind that Dear IP makes no mention of R3’s STCs and from what I can see there is a chasm of difference in how the two STCs have incorporated the 1986 Rules.

True, both STCs define the “Rules” as the Insolvency Rules 1986 as amended and the Service makes the case for equating this to the 2016 Rules. I have heard argument that the Service’s reliance on S17 of the Interpretation Act 1978 does not stack up: if a contract – which is what we’re talking about here – refers to Rx.xx of the Insolvency Act 1986 (as amended), does it not remain as such notwithstanding that the 1986 Rules have been revoked?

This takes me to the chasm between the two sets of STC: for example, the IVA Protocol STC state that “The Supervisor may… summon and conduct meetings of creditors… in accordance with the Act and the Rules” (19(1)), whereas the R3 STC describe in detail how to convene meetings and conduct postal resolutions with no reference to the Act or Rules. Therefore, personally I am struggling to see how the 2016 Rules affect existing VAs’ methods of seeking creditors’ agreements where those VAs are based on the R3 STC. However, I also question whether the R3 STC restrict meetings to physical ones – when I read the STC cold, I’m not persuaded that they don’t also work for virtual meetings (but then again, don’t most meetings happen only on paper anyway?) – so it seems to me that the R3 STC may allow a variety of routes but, thankfully, without all the baggage that the 2016 Rules carry with them, which may load down Protocol IVAs in view of their vague reference to “in accordance with the Act and the Rules”.

Does Dear IP make the IVA Protocol position clear?

It’s Dear IP’s treatment of the Protocol STC’s wording, “The Supervisor may… summon and conduct meetings of creditors… in accordance with the Act and the Rules”, that puzzles me. On the one hand, Dear IP acknowledges that the Act and Rules “remain silent on how decisions are taken once in (sic.) a voluntary arrangement is in place”… so they seem to be saying that the Act and Rules are irrelevant to a supervisor looking to call a meeting. But then Dear IP says: “we do not believe [supervisors] should feel restricted to only using a physical meeting. We expect supervisors to take advantage of the new and varied decision making procedures that are available under the Act as amended and the 2016 Rules”.

But how possibly can the phrase, “the supervisor may summon and conduct meetings of creditors”, morph into for example: “the supervisor may seek a decision by means of a correspondence vote”? This is too much of a stretch, isn’t it? Rather than be meant as a comment on the application of the 2016 Rules to existing VAs, perhaps the Service is simply stating that it would like IPs to incorporate the various processes in future VA Proposals and STC, don’t you think?

Because the Act and Rules in themselves do not empower supervisors to seek decisions, does this mean that the Protocol STC’s words “in accordance with the Act and the Rules” are redundant? Or are these words supposed to mean that the supervisor should “apply the provisions of the Act and Rules in so far as they relate to bankruptcy with necessary modifications”, as paragraph 4(3) of the Protocol STC states? Ok, if the latter is the case, then what is the effect of S379ZA(2), i.e. that a trustee cannot summon a physical meeting unless sufficient creditors request one? This would seem to take us far from the Dear IP position where supervisors should not “feel restricted to only using a physical meeting”.

For these reasons, I think the Dear IP is horribly muddled. Perhaps the IVA Standing Committee might like to clarify the position in relation to their STC..?

What is the deadline for forcing a physical meeting in a S100 scenario?

This is another area that seems to have got horribly muddled. It seems to me that much of the confusion over this arises because of the conflating of two potential creditor responses: (i) a creditor can object to a decision sought by deemed consent; or (ii) a creditor can request a physical meeting. It is true that, when a S100 decision on the liquidator is sought by deemed consent, the consequence of either response is the same: a physical meeting is summoned. However, the Rules around each response are different.

The deadline for objections

R15.7(2)(a) states that the notice seeking deemed consent must contain “a statement that in order to object to the proposed decision a creditor must have delivered a notice, stating that the creditor so objects, to the convener not later than the decision date”. “Not later than the decision date” must surely mean that objections delivered on the decision date are valid (note: although this rule only specifies what must appear in a notice, S246ZF(4) makes clear that “the procedure set out in the notice” is binding).

The deadline for physical meeting requests

For a S100 decision, R6.14(6)(a) states that “a request [for a physical meeting] may be made at any time between the delivery of the notice… and the decision date”. I have heard argument that “between” excludes the days at each end, which would mean that the deadline for requests would be the end of the day before the decision date. At first, I was persuaded by this interpretation, given that, if I were to count how many people in a queue were between me and the ticket office, I would not include myself in the number… but then someone asked me to pick a number between 1 and 10..!

This interpretation of “between” also makes little sense when considering R15.4(b), which states that an electronic voting system must be “capable of enabling a creditor to vote at any time between the notice being delivered and the decision date”… so the IP isn’t interested in votes cast on the decision date then..?

The Insolvency Service’s policy intentions

How does Dear IP pull these threads together? It states: “The policy intention (in all cases) is that a request for a physical meeting must arrive before the decision date. The policy intention with regard to electronic voting is that creditors may cast their votes up until the decision closes (i.e. 23:59 on the decision date). We believe that the 2016 Rules are capable of supporting both these policy intentions.”

The Insolvency Service appears blinkered in their statement that the 2016 Rules support the policy intention, because they simply focus on requests for a physical meeting. Irrespective of how “between” is interpreted, the fact is that a deemed consent can be objected to up to 23.59 on the decision date and such an objection would force a physical meeting. Therefore, a members’-appointed liquidator will still be left in the position of not knowing whether there will be a last-minute objection that will force an unexpected c.week-long Centrebind.

What happens if a Centrebind is longer than 14 days?

I feel I should apologise for wasting people’s time in explaining (via this blog (https://goo.gl/hikYKr), R3 presentations and our webinars) the risks that a Centrebind could last longer than 14 days if material transactions need to be reported or a physical meeting needs to be convened.

The Insolvency Service’s simple answer

The Insolvency Service gave the simple answer on their blog that “it is sufficient that the original decision date was within the required timescale”. In other words, provided that the convener fixed the decision date for the S100 deemed consent process or the virtual meeting not later than 14 days after the winding-up resolution, it is of no consequence that this decision date falls away because the date of a consequent physical meeting falls outside this timescale.

I find the Insolvency Service’s answer startling. Personally, I would expect the Rules to make explicit that it is the original S100 decision date that matters, in the same way as Para 51(2) uses the expression “initial decision date” when setting down the 10-week deadline for Administrators to seek approval of their proposals (i.e. Para 51(3) explicitly provides that Administrators do not get into a pickle if creditors reject a decision by deemed consent and then the Administrator convenes another decision process with this second decision date falling outside the 10 weeks).

Can this principle apply also to VA Proposal decision dates?

What about the other instance when an important decision date deadline must be met: the approval of an IVA Proposal? R8.22(7) states that this decision date must be not more than 28 days from the date on which the nominee received the Proposal (or when the nominee’s report was considered by the court). Given that 14 days’ notice is required, it would be very possible for a physical meeting decision date to be outside this timescale. Would it matter as long as the original decision date was inside it? The Rules do not address this point, but neither do they address the unintended Centrebind position.

Much as my heart’s cockles are warmed by the Insolvency Service’s answer, personally I would be nervous in relying on it.

How do you deal with preferential creditors’ decisions?

The Insolvency Service’s answers on this topic are eminently sensible and I am more than happy to live with them… but it’s just that I cannot help but continue to ask myself: “yes, but where does it say that?”

The questions surround the New Rules’ defined process for seeking prefs’ approval of matters such as the Administrators’ fees. Exactly how do you conduct a decision procedure of prefs alone?

Firstly, what do you do with pref creditors who have been paid in full? R18.18(4) states that pref creditors must make a decision on fees, if the Administrator “has made or intends to make a distribution” to prefs (in a Para 52(1)(b) case). This would seem to include prefs who have been paid in full, but R15.11 excludes them from receiving notice of the decision procedure.

But, actually, what do we mean when we refer to pref creditors being paid in full? Usually we mean that the pref element of their claim has been paid in full, but often they will still have a non-pref unsecured claim. How do you calculate a pref creditor’s value for voting purposes?

R15.31(1)(a) states that, in an administration, votes are calculated “according to the amount of each creditor’s claim as at the date on which the company entered administration, less any payments that have been made to the creditor after that date in respect of the claim”.

Another simple answer from the Insolvency Service

The Insolvency Service’s answer to these questions was: “Our interpretation is that [R15.31(1)(a)] would lead an administrator to consider the value of outstanding preferential claims at the date that the vote takes place. This would only include the preferential element of claims, and if these had been paid in full then the administrator would not be expected to seek a decision from those creditors.”

Personally, I don’t see that R15.31(1)(a) gets us anywhere: it doesn’t state that a creditor’s claim is only its preferential element when a decision procedure is only open to pref creditors and it doesn’t state that you do not need to seek a decision from pref creditors who have been paid their pref elements in full… but in all other respects I like the Service’s answers!

Do creditors need to get forms absolutely correct?

There is no denying that the 2016 Rules have placed a heavier burden on us all to get the details correct. Many things that we were used to doing in simple text form are now described as “notices” and every statutory notice must include “standard contents”, which often require the addition of new detail such as insolvents’ company registered numbers or residential addresses.

The validity of old proofs of debt

In many cases, creditors are not spared these requirements. For example, the prescriptive detail of proofs of debt – R14.4 – is quite different from the old requirements. If you are adjudicating on pre-April proofs, can you accept them for dividend purposes? Indeed, can you rely on a Notice of Intended Dividend process commenced before 6 April?

As regards the need for creditors to submit new proofs to meet the New Rules’ requirements, the Insolvency Service answered: “Section 16 of the Interpretation Act 1978 may be relied upon here, and proofs which have already been submitted do not become invalidated.”

Incidentally, S16 of the Interpretation Act 1978 states that a “repeal does not, unless the contrary intention appears… affect the previous operation of the enactment repealed or anything duly done or suffered under that enactment [or] affect any right, privilege, obligation or liability acquired, accrued or incurred under that enactment”, so does this help as regards NoIDs? Are IPs safe to rely on old NoIDs as protecting them from late creditors? This wasn’t the question put to the Service, but it would seem to me the only way the New Rules could possibly work.

However, I’m not quite sure how S16 helps IPs decide now whether to admit an old proof for dividend purposes, when surely they must measure proofs against the New Rules, mustn’t they? But, realistically, what could an old proof possibly be lacking that might struggle to get it admitted under the New Rules?

Providing the detail required for new proofs

I asked the Service about the requirement for a proof to be authenticated. R1.5(3) states that “if a document is authenticated by the signature of an individual on behalf of… a body corporate of which the individual is the sole member, the document must also state that fact”. If a creditor failed to state this on a proof, would it render the proof invalid? And, if so, does this obligate office holders to check this point?

Alternatively, does R1.9(1)(b) help us all out? This rule states that “where a rule sets out the required contents of a document, the document may depart from the required contents if… the departure (whether or not intentional) is immaterial”.

The Insolvency Service’s answer was: “The extent to which an office-holder could rely on rule 1.9(1)(b) here would be a matter for them to decide, possibly in liaison with their regulatory body.” I can understand why the Service was not tempted to put their neck on the block on this question, but it does demonstrate to me the nonsensical nature of the New Rules: they set out prescriptive detail of what must be provided… then add a rule that states it’s okay if a departure is “immaterial”. Why put prescriptive immaterial requirements in the Rules in the first place?!

Do creditors need to meet the notice requirements?

I felt a similar irritation when I read Dear IP’s article, “Do creditors’ notices have to comply with standard content”, for example when creditors object to a decision sought by deemed consent. The Service seems to be implying that the answer is no: “if it is clear what the creditor is seeking in their notice, it should be accepted”. Again, this leaves me wondering: if a creditor is free to run a red light, why put the lights up in the first place?

Having said that, R1.9(1)(b) might be a useful one to remember the next time the RPB monitors call… although we might expect some debating over what is “immaterial”.

The detail (not) required for proxy forms

I think it is also worth mentioning here the observation made on the Service’s blog at the lack of prescription when it comes to proxy forms. The Service explained that “the requirement to authenticate [a proxy form] was removed as a deregulatory measure, because authentication does not confer legitimacy. As long as the office-holder is satisfied that the proxy comes from the creditor then the requirements for submission are met.” So a creditor must sign a hard copy proof but need not sign a proxy form. Well, fancy that!

In my next post, I’ll set out some other nuggets gleaned from the Insolvency Service’s blog.

Did you wonder what the RPS was going on about when it announced (Article 54, Dear IP 64) that the recent EAT judgment would not affect its claims-processing, but it has sought advice? Bearing in mind that the RPS gets involved some way down the insolvency process, is there anything that IPs should be taking into account right now?

The Judgment: Bear Scotland Limited & Ors v Fulton & Ors

I briefly described the decision of the Employment Appeal Tribunal in an earlier blog post: http://wp.me/p2FU2Z-8I. In a nutshell, the EAT decided that the “normal remuneration”, to be used in calculating the employees’ claims for holiday pay, should include overtime that the employer was not bound to offer but that the employees were required to work (or could not unreasonably refuse to work), if requested (“non-guaranteed overtime”).

Permission to appeal was granted and it seemed widely-thought that an appeal was likely in relation to part of the EAT’s judgment, which limited claims for underpaid holiday pay to instances of underpayment not exceeded by a gap of more than three months. However, the Unite union announced that it will not appeal (http://goo.gl/EqII77) and, as the Tribunal judge expressed the view that this issue alone was the arguable one, personally I’m not sure why the employers would pursue a further appeal. Therefore, it seems unlikely that there will be an appeal (but I’m no lawyer).

The Government Task Force

I also mentioned in my earlier post that the government had set up a task force to assess the possible impact of the decision.

On 18 December 2014, the government announced its solution: http://goo.gl/kJ7sJu. Unusually with no public consultation, it swiftly laid down regulations – the Deduction from Wages (Limitation) Regulations 2014 – to limit unlawful deductions claims to two years. The regulations will come into force on 8 January 2015, although they will only take effect on claims made on or after 1 July 2015, so there is a 6-month window for claims to be lodged potentially going back to 1998 when the Working Time Directive was implemented in the UK.

It is undeniable that the Bear Scotland case precipitated these measures, although the Impact Assessment (“IA”) makes clear that the regulations will limit claims not only arising from this decision. The IA mentions, for example, the ruling from the CJEU in the case of Lock v British Gas (see, e.g. my blog post: http://wp.me/p2FU2Z-82). This case concluded that sales commission should be reflected in holiday pay calculations, although the UK application of this decision will not be known until the case is heard by the Leicester Tribunal, which I understand will not happen until February (http://goo.gl/ezx8Qj).

Although the regulations don’t actually affect the Bear Scotland decision, just the extent of businesses’ (and the RPS’) exposure to claims arising from the decision, the rhetoric doesn’t suggest that the government feels there is much risk that the decision might be overturned. Then again, the regulations do simply plug a dangerous gap in the ERA96, so they are valuable whether or not Bear Scotland happened; the future is never left wanting for unexpected court decisions.

Dear IP 64

Given this background, I am somewhat surprised that the RPS has announced that it “will continue to process claims in the usual way until the expiry of the appeal period” of the EAT decision. However, because I assume that the appeal period is largely a valuable pause in which the RPS can take advice and consider its next steps, what puzzles me a little more is: what action might the RPS take if there is no appeal?

The IA makes clear that “it is the worker’s responsibility to prove that they have a holiday pay claim in the employment tribunal”. Thus, I would have thought that there is no obligation on the RPS – or by extension on insolvency office holders – to examine Company records to see whether past holiday pay claims have been calculated in line with the decision and, if not, look to adjust them. However, I would also have thought that if any employees present a claim for unlawful deductions, whether to the RPS or to an IP, this could be dealt with without the need for the tribunal process, albeit quite rightly I think after the expiry of the appeal period.

But what about holiday pay claims that have not yet been processed? Again, understandably the RPS will not want to pay out any enhanced holiday pay until the appeal period has expired. Also, I assume, it will be for employees to make clear on their RP1s the “normal remuneration” that they expect to form the basis of their holiday pay calculation, although I don’t think that the RP1 form lends itself well to dealing with disclosure of non-guaranteed overtime – maybe another re-write is something that might appear after the appeal period has expired.

Thoughts for IPs

Finally, what about forms RP14A, which IPs complete to provide the RPS with basic information about employees made redundant from insolvent businesses? The forms (I think) only ask for “basic pay”, so what should IPs be answering here? I’m sure that IPs will not be criticised for acting on the Dear IP basis and continuing to complete RP14As “in the usual way until the expiry of the appeal period”, although personally this seems a little short-sighted to me. If an IP were to know that employees’ holiday pay claims would be different if the Bear Scotland decision were applied, should he/she not take this into account when submitting an RP14A, at the very least alerting the RPS to the possible impact of the decision on the employees’ claims against the insolvent business in question?

Other questions arise by extension: should the IP make enquiries of insolvent business’ payroll departments to explore whether the effect of the decision has already been taken into account, or if it has not been considered, what effect it would have?

Of more concern to IPs dealing with a trading-on situation would be: how is the payroll department calculating holiday pay going forward? IPs will not be want to be taken unawares by receiving claims for unlawful deductions long after the estate funds have been disbursed.

I also envisage this decision impacting on the TUPE obligation to provide to purchasers employee liability information, which would include any claims that the employer has reasonable grounds to believe that an employee may bring.

Of course, all this will already have been considered by ERA specialists and departments and IPs will not be short of solicitors who will be happy to advise. Eventually also, we may receive an update from the RPS.